Federal Income Taxes Fall 2014 VITA Training Dr. Cathy Bowen Dr. Barbara Yener Today s Approach Use Form 1040 and common tax forms to discuss key areas of completing a tax return for VITA taxpayers. Not comprehensive. Self-study needed. TP=abbreviation for taxpayer 2 Your Tax Knowledge How would you rate your current knowledge about personal income taxes? 1=Very Good 2= Fair 3=Blank Slate Ready to Learn Process 1. Arrive for shift: sign in. End of shift: sign out. 2. Once you ready to start, get a taxpayer from waiting area. 3. Review the intake interview form to verify that information is correct. Clarify as needed. Sign your initials on areas changed. Enter data into TaxWise. 4. Once you are done, review work for accuracy. 5. Ask a shift supervisor to check your return. 6. Give the completed return to the supervisor for storing. 7. Get another taxpayer, repeat the above. 3 4 Process Continued Returning taxpayers Social Security numbers and names are correct in the system (unless they married).verify. Missing SS card is ok. Check picture ID. Check to make sure taxpayer is eligible for VITA. Look at all income documents before starting. ASK if there is anything they have forgotten. Estimate total income to make sure they are within the guidelines. Filing Requirements See filing requirement chart in 1040 Instruction Booklet. Generally required to file if income equals the standard deduction for your filing status plus the personal exemption amount 2014 Single under 65 Personal Exemption Standard Deduction Must file if your gross income was at least $3,950 $6,200 $10,150 5 6 1
See front of 1040 Instruction Booklet Question 1-Filing Requirement Q. If you are not required to file a return according to the IRS chart, why might you file a return if you had earned income? A: To get taxes withheld that are due to you. 7 8 Personal Information Check spelling of name. Should match what is on Social Security Card. MFJ--List names as listed on previous tax returns. Do not swap position of names for married couples. Previous TP at the PSU VITA site, information will auto-fill on tax forms. Preparer must verify that the information has not changed. On TaxWise use carryforward data. 9 10 Presidential Election Campaign If TP checks this box, it will not lower the TP s individual refund. Where does the money come from? Tax dollars (already paid) Money is used by presidential campaigns general elections, conventions, presidential primaries. http://www.fec.gov/info/checkoff.htm#anchor1387639 11 12 2
Filing Status Single Married filing jointly Married filing separately. Need spouse SS# Head of household Qualifying widower Question 2-Filing Status Q: What is the difference between head of household (HOH) and single? 13 14 Question 2--Answer Qualifying child: son, daughter, grandchild who lived with TP more than ½ of year Qualifying relative (Mom or Dad) Qualifying relative who lived with TP more than ½ year Not sure--use decision tree in Publication 4012. Qualifying Widower Spouse died in past two years (2012 & 2013) and you did not remarry. At death TP could have filed a joint return You paid more than ½ cost of home upkeep Your dependent child or stepchild lived in your home all year. 15 16 Exemptions A dollar amount that can be deducted from income Two types personal and dependent Parents/TP take personal exemption Dependents (children, parents, qualifying relatives listed on the return) Total number of exemptions transfers to line 42 How valuable is an exemption? 2013 $3,900 2014 $3,950 Form 1040 Consider it a simple math problem. See left section of form. Income (+) Adjusted Gross Income (-) (Adjustments) Taxes & Credits (-) Other Taxes (+) Payments (-) Refund Amount You Owe 17 18 3
Income-Line 7 W-2 income Various styles of w-2s Read each carefully. Pay attention to numbered boxes PSU w-2 common at the site Ways to add income not on usual tax forms Scholarships (box on TaxWise) Scratch Pad. Example 1042-S international students 19 20 TaxWise Screen Shot TaxWise Additional income not on w-2 added to line 7 Scratch Pad 21 22 Example PSU w-2 PSU w-2 23 24 4
PSU w-2 State EIN Federal EIN Note difference Use on PA-40 25 26 Income-Lines 8 & 9 Taxable interest Tax exempt interest (identified on documents) If < $1,500 (2013), no Schedule B needed Over $1,500 (2013), report on Schedule B Dividends (type identified on tax document) Ordinary (identified on documents) Qualified (identified on documents) 1099 INT 27 28 1099 Div Income-Lines 10 &11 Local and state tax refunds. Include only if taxpayer itemized deductions in previous year. (Hint: Ask taxpayer or look at last year s return for a Schedule A.) Alimony received 29 30 5
Income- Line 12 Business Income Small business owners/independent contractors will have a Form 1099 Misc. Report income & expenses on a Schedule C or CEZ. DO NOT enter income directly on line 12. Link from line 12 and complete the Form 1099 Record information on a Schedule C or C-EZ and the correct amount will flow back to line 12. Expenses $5,000 or less=c-ez. up to $10,000=C 1099-Miscellaneous 31 32 TaxWise 1099-Miscellaneous Income-Line 13 Capital Gains (Loss)--from Form 1099-DIV or substitute statement, list gain (loss). Line 14 (not likely used at VITA site) 33 34 Income--Lines 15a &15b IRA distributions--income reported on 1099-R Copy the paper 1099-R in the electronic version. Complete all boxes. Mostly affects retirees. Others who withdraw funds before age 59 ½ Income-Line 16 Pensions and Annuities Reported on 1099R 35 36 6
TaxWise 1099-R Income-Lines 17, 18 & 19 Rental Estate Farm income. Not applicable to VITA sites. We cannot do returns with these. Line 19 Unemployment Compensation Replicate the hard copy of the Form 1099-G 37 38 TaxWise 1099G Income Line 20 Social Security part may be taxable. Software will calculate the taxable amount. Reported on Form SSA-1099 Read the SSA-1099 Documents from the Social Security Administration can be used to verify Social Security number. 39 40 SSA-1099 Income Line 21 Other income line 21 Mostly 1042-S income received by international students Depending on the tax code and country, this income is usually exempt from federal taxes, thus is subtracted on Line 21. 41 42 7
Example 1042-S Example 1042-S 43 44 TaxWise Additional income not on w-2 added to line 7 Form 1040, Line 21 Other Income Worksheet Scratch Pad 45 46 1042-S Income subtracted Tax Treaties Income Code Explanation 15 Fellowship/Grant 20(b) 18 Teaching or Research 19 19 Studying and Training 20(c) Treaty Article Code for China Line 21 of Form 1040, write: China Treaty 20(b) - amount on Line 21 income sheet. 47 48 8
Adjusted Gross Income STAND IN PLACE STRETCH BREAK 49 50 Adjustments-Line 23 Educator Expense for public school educators. Up to $500 spent on school supplies Adjustments-Line 27 Self-employment tax deduction. TP get to deduct the portion of tax paid as the employee Social Security Tax Social Security Medicare Total Employer 6.20 1.45 7.65 Employee 6.20 1.45 7.65 Total 15.30 51 52 Adjustments-Line 28 Not likely to occur at PSU VITA Adjustments-Line 30 Penalty on early withdrawal of savings If applicable will be listed on the 1099=INT 53 54 9
Adjustments-Lines 31-34 Alimony paid IRA deduction (tax deductible IRA) Student loan interest (limited to $2,500 in 2013) Tuition and fees (most take the education credit on p. 2 line 49 as it is more valuable) 1098 -E Student Loan Interest 55 56 Taxes and Credits Taxes and Credits Line 38 is the AGI from page 1 Lines 39 additional deduction for those 65 & older. Auto calculated. Line 40 Itemize or standard deduction (most take standard deduction) Line 42-Exemptions (amount x #of individuals on the return. Line 43 Taxable income Line 44 Tax from tax table (TaxWise calculates) 57 58 Schedule A Schedule A Used if TP itemizes deductions Tip-Estimate taxpayer s expenses using a calculator before making entries in TaxWise. The standard deduction may be larger. 59 60 10
Schedule A-continued BREAK TIME 61 62 Taxes & Credits Line 47 Foreign tax credit (mutual funds) Usually does not require Form 1116 as amounts are low. (Single <$300, MFJ <$600) Line 48 Child and dependent care expenses Line 49 Education Credits (Hope or Lifetime Learning) Line 50 Retirement Savers Credit Line 51 Child Tax Credit Line 52 Residential Energy Credits Line 53 Other Credits Line 54 Total of lines 47 to 54 Nonrefundable Credits Can only decrease your tax bill. Any amount remaining after your taxes are subtracted or lost. Child and dependent care expenses Child under 13, expenses paid so you can work Mentally/Physically incapable of self-care any age who you can claim as a dependent or could claim except they had income X (std. deduction amount) 63 64 Nonrefundable Credits http://www.irs.gov/pub/irs-pdf/p5085.pdf Child Tax Credit Retirement Savers Credit for saving for your retirement Eligible if box 12 on w-2 is checked Eligible if they have a Roth or traditional IRA Certain income guidelines apply 65 66 11
Maximum credit Refundable or nonrefundable Number of years of postsecondary education Number of tax years credit available Education Credits American Opportunity Lifetime Learning Up to $2,500 credit per Up to $2,000 credit per eligible student return 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income All years of postsecondary ONLY for the first 4 years education and for courses of postsecondary to acquire or improve job education skills ONLY for 4 tax years per eligible student An unlimited number of years Number of courses Education Credits American Opportunity Credit Must be enrolled at least half time for at least one academic period during the tax year Lifetime Learning Credit Available for one or more courses Felony drug convictions Felony drug conviction No felony drug convictions are permitted Qualified expenses Tuition and required enrollment fees. Courserelated books, supplies, and equipment do not need to be purchased from the institution in order to qualify. Tuition and required enrollment fees, including amounts required to be paid to the institution for course-related books, supplies, and equipment. 67 68 1098-T Tuition Statement PSU 1098-T 69 70 PSU 1098-T 71 72 12
Other Taxes Other Taxes Lines 56-61 Line 56-Self-Employment Tax. Schedule SE Line 58-Tax on IRA-10% penalty for early withdrawal. Lines 57, 59, 60 usually not applicable at our site. 73 74 Payments Payments Line 62-Federal Income Tax Withheld Auto populated from w-2 Add more on electronic form Line 63 estimated taxes paid, self-employed, recipients of taxable fellowships Line 64a Earned income tax credit 75 76 Payments Refundable Tax Credits Line 64a Earned income tax credit Line 65 Additional child tax credit Line 66 American Opportunity Credit Lines 67 to 71 not applicable to VITA Premium Tax Credit for those with assist for health insurance.?????????????? Earned Income Tax Credit A credit that can be paid to low-income workers, even if no income tax was withheld from the worker s pay. Taxpayers must file a tax return to receive the credit. Refundable Credit: Occurs when the amount of a credit is greater than the tax owed. Even if taxpayers tax liability is zero, they can receive a refund of excess credit. ITINs and ATINS cannot be used to claim the EIC Use the decision trees in Publication 4012 77 78 13
Copy directly from a check not a deposit slip Previous year return if returning taxpayer. Check Routing & Account Number 79 80 Signature Electronic returns signed electronically Make sure to get telephone number and e-mail address if they use e-mail. Site PIN and EFIN will print automatically Federal e-file Authorization 2 copies will print. 1 for site and 1 for taxpayer 81 82 Federal e-file Authorization-8879 Signature area RESOURCES 83 84 14
1040 Instruction Booklet Publication 17 85 86 Publication 4012 Review Tax Forms 1099 Misc. Non-employee independent contractor services, rental income, etc., 1099 INT Interest income on investment accounts, saving bank account, etc., 1099 DIV- Dividends and Distributions on investments 1098 Mortgage Interest Statement, mortgage points, mortgage insurance premiums 1098 T Tuition Statement 1098 E Student Loan Interest Statement 87 88 Intake Interview Form (13614-C) Internal Revenue Service (IRS) www.irs.gov 89 90 15
Link & Learn https://www.linklearncertification.com/d/ 91 92 Understanding Taxes Just In!! Pub 5101 Intake/Interview & Quality Review PPT Pub 4961 Volunteer Standards of Conduct 93 94 Next Steps for Tax Preparers Browse Link & Learn Make sure you are getting VITA e-mail Inform us if you cannot continue 2014 Updates to TaxWise and Link & Learn should be up by end of November 95 16